The Great Unravelling

Britain faces its biggest peace-time crisis since 1945. Brexit is creating profound challenges for business, for work, for our relations with our nearest neighbours but, perhaps more importantly, for what it means to be British. The divisions are the nearest an advanced industrialised country has ever approached Civil War. This is an existential moment in modern British history.

The decision to hold a referendum, the terms on which it was held and the manner of the campaign itself speaks to a deep decadence. It was a ruse to hold the Conservative party together. Its over self-confident architects did not think to require – neither did our unwritten constitution demand - that those who campaigned for leave should set out the terms of what a vote to leave would mean – unlike either the Scottish Referendum or indeed almost any other referendum held in Europe. Broad sections of the press allowed their usual partisanship to mutate into a scandalous propagandizing: the People’s Daily is more objective in the hand of the Chinese Communist Party’s Propaganda department. The result therefore has multiple interpretations: is it a vote to take back control? A vote against immigration? A vote against Cameron? A protest vote of the left behind? A vote for soft Brexit? A vote for hard Brexit? A vote in all cases manipulated by shameless media propaganda?

This confusion interacts with the doctrine that parliament should be sovereign, even over a referendum result, and so is plunging the country into a constitutional crises overlaid on all the others. Is the legitimacy of British democracy rooted in a referendum that as mounted could not frame a proper argument but which is none the less represented by the winners as the will of the people: or should parliament, in which British law is rooted, remain supreme? What are the powers and how much of a veto should be afforded the devolved parliaments? Scotland and Northern Ireland, after all, both voted to stay in the EU. Meanwhile the pound plunges and on the streets, clubs, pubs, trains and buses anti-foreigner, quasi racist statements are on the increase. A liberal, tolerant outward looking country is being transmuted into an illiberal, intolerant inward looking country. This is as fundamental as it gets. A battle is being joined for our soul – but those who are watching all they hold dear and centuries of what it means to be British being taken off them are not returning fire. Nigel Farage was right when he said it was a revolution without a shot being fired. Decadence is having its reward.

The referendum has been a triumphant moment for the British right and extreme right – however a fractious and uneasy coalition which even includes a minority on the left. Taking back control, the great rallying call of the leavers begged the question of how much control to do what and in which context. Even the great opening up to the globe that was promised turns out to be specious – an opening up that means tighter immigration controls, including on foreign students, is not much of an opening. But whatever its ambiguity, what Brexit certainly means in a British context – an unwritten constitution, a sovereign parliament exercising delegated monarchial powers, a first past the post electoral system to be reshaped in the conservative interest and a print media owned and edited in the most conservative partisan way – means the right taking control.

Their aims politically are to make sure that as far as possible, English conservativism becomes the dominant force in British government, now to be unconstrained by EU architecture with its roots in Christian and social democracy, and so socially halting as far as possible all that is implied by openness – immigration, integration with the EU, diverse communities and social liberalism – and returning to the certainties and social mores of 1950s England, Economically the picture is more complex. Although some leavers are libertarians, anxious to be free, as they would argue, to complete the Thatcherite revolution free from what they describe as the yoke of European regulation and stifling of our relationships with the rest of the world (although unable to provide convincing evidence of either) in this atmosphere of closure the animating conservative philosophy is to form a rupture with both economic and social liberalism. It asserts a British communitarianism – economic policy badged with the Union Jack whether industrial or employment policy – but which is congruent with closing borders and social conservatism.

What all this implies is a Great Unravelling of Britain’s relationships with Europe, especially if the result is understood as hard Brexit. The British economy will be plunged into protracted stagnation – the deeper and more protracted Hard Brexit becomes the country’s chosen path. The consequence of 42 years of EU membership in an era of globalization is the close integration of the British economy into the European Economy. Whether an Airbus 380, a Nissan Juke or a syndicated loan the product or service’s construction and then delivery is embedded in a network of European economic actors who enjoy the four freedoms – goods, capital, people, and services - and regulatory architecture of the Single Market, with its important passport that allows any EU company to trade anywhere as long is complies with host country rules. Britain, with its enterprise friendly legislation, soft infrastructure ranging from its language to its legal system, has won over $1 trillion of inward investment – the economic aircraft carrier allowing the worlds multi-nationals to export into the EU, and as importantly, integrate their supply chains as if the whole continent was a single economic jurisdiction. We should not be surprised that the Japanese government or the American Chambers of Commerce have told Mrs. May in no uncertain terms that further investment in this atmosphere of uncertainty is close to impossible – and that disinvestment highly likely. The British Bankers Association warn that banks are set to leave soon too.

The knock-on consequences are profound. A vibrant service sector economy has been built around the some 500 multinationals who have their regional or global headquarters in London. Our big 4 accountancy firms, our magic circle law firms, our insurance and banking industries and our airline industries – to name but a few - have fed off this fantastic and growing market. This then creates a further market in sophisticated services – IT through luxury services to property and the creative industries. London was becoming the New York of Europe – and England’s major cities along with Edinburgh Glasgow and Cardiff were experiencing shadow effects.

All this is now in peril. Mrs. May is hinting she is looking less for hard Brexit than a root and branch reshaping of Britain’s relationship with the EU, in which we recast our relationship with the EU on terms that wholly suit us – border controls and no recognition of EU law, but retaining the capacity to trade with the EU as freely as we do now in a customs union at the very least. It is fantasy, not least because a single market has to be governed – which requires governing principles - and disputes adjudicated. The principles are the four freedoms: the adjudication process the European Court of Justice. Even if our former partners want to play ball with us – not least to serve their own interests – there are limits to what can be conceded without compromising the entire basis of the EU. These are negotiations where the political will trump the economic: the EU has to protect its integrity and while its aggregate losses from rupturing its trade relationships with Britain match ours, they are spread around 27 member states. Nor are the Commission or Parliament ready to accede not just to terms that if achieved by others could break up the EU, but also is a green light to Anglo-Saxon capitalism. What seems most likely is years of difficult negotiations, ongoing uncertainty about the outcome, stalemate and finally a hard Brexit – with perhaps some sectoral deals - in which our trade relationships will be governed by the World Trade Organisation. All those integrated supply chains, passports and free access will be over. Never forget that 40 per cent of our service trade and 56 per cent of our goods trade was with the EU. The economic aircraft carrier will be sunk

The foreign exchange markets have delivered their verdict, and hopes of a consequent export boom to offset the unravelling of an economic model 42 years in the building are overdone. Britain’s long standing, self-made and unreformed weaknesses in its core capitalist structures – the ownership, financial and innovation ecosystem – means that our export sector, especially of goods, is uniquely weak. Our share of world markets in goods has been falling for decades, in part because of an overvalued exchange rate, but also because of these unaddressed weaknesses. The response to the devaluation after the financial crisis was paltry. It promises to be paltry again. One prominent economic forecaster – NIESR – forecasts an up to 60 per cent drop in our service exports. Exports of goods will have to boom just to offset that effect. They can’t and won’t.

But what is certain is a rise in inflation – a rise in the price level of around 5 per cent spread over the next two years, and almost certainly a rise in interest rates. There will thus be an intense squeeze on real incomes, driven by a rise in food, fuel and housing costs. Indeed with some 30 per cent of household income consecrated to mortgage service for first time buyers and the house price to income ratio close to an all-time high, there is little doubt that house prices will fall – as will consumer spending more generally. Investment, given the uncertainty, must fall too. Growth is bound to slow down to 1 per cent or less next year – and to stay depressed every year thereafter until the uncertainty lifts. When the director general of the CBI warns of business going over a cliff, we should sit up and listen. The Governor of the Bank of England, so criticized by the right wing Leave establishment for his warnings and policy response, was only speaking the truth – something increasingly foreign to the public discourse shaped by the leave movement.

Nor should a full blown crisis be excluded. There could be a further run on the pound. The Bank may be forced to lift interest rates more sharply. The residential and commercial property markets could become very weak – as could agricultural land prices. The banking sector, with its loans collateralised against falling property values, could look very exposed: in which case another bank run, triggered by weakness on one of our most exposed banks, cannot be excluded. But this time round it will be much harder to finance a bail-out. Foreign creditors will ask: what is the trading regime in which the UK is going to trade itself back to growth and current account surpluses, and credit lines repaid? This is the domain of a banana republic.

Already there are storm warnings of what lies ahead – the recent precipitate flash fall in sterling in Asian markets and the public sector deficit being forced up £14 billion higher than projected in the current financial year. The Resolution Foundation warn that just on a modest downward revision of growth the deficit will widen by £23 billion by 2020/21 – cumulatively a shortfall of £80 billion. The derided Project Fear was right – indeed may even, in trying to be responsible, pulled its punches. An austerity weary Britain is going to face more intense austerity still.

British society is no great shape to handle the economic buffeting of the great unravelling. Inequalities of income and wealth between generations, between regions and classes are unedifyingly high – and the Brexit vote, closely co-related to those at the receiving end of Britain’s multiple inequalities and where immigration and imported goods had risen sharply over the last decade, can in part be interpreted as a call for a change of course, to be dealt into the prosperity of London and not to be forgotten or left behind. They are right. The question that needed answering is not whether Britain should remain or leave the European Union which until June 23rd was not even in the top ten of voters’ concerns. It is how can the mass of British flourish, and lead lives in Amartya Sen’s famous formulation that they have reason to value? The answer is not leaving the EU – rather it is a programme of reform of Britain’s core capitalist structures, creative remodeling of most of our social and public institutions, the creation of a flexible cradle to grave system of welfare, reimagining the way our labour market operates along with the reimagining of trade unions and yes – refashioning the tax system so that it delivers the financial resource to finance the country-wide level of public services and public infrastructure that is plainly needed.

This should have been territory staked out by the Labour party: indeed I have spent much of the last twenty five years trying to persuade Labour leaders, and even some of the recent contenders for the Labour leadership, but with singular lack of success. The time has not been right or it might be judged to be anti-business: in truth it is about lack of intellectual self-confidence intertwined with political cowardice. So it is Teresa May, in a Nixon in China moment, who has picked up many of these themes and policies. But she faces nigh insuperable obstacles in doing what needs to be done. Brexit means she has not got the financial resource she needs: her government will be implementing such policies, hard enough to devise and win support for, with its back needlessly against the wall, distracted by the mammoth task of organizing the great unravelling, budgetary shortfalls and fire-fighting a succession of malign consequences of which Nissan is but the first. But secondly the atmosphere in Britain is poisoned by civil war. The legacy of the leave campaign is a cultural disaster. It is anti-expert and hostile to the great institutions of the country whether the Bank of England or the BBC. Note that chairs of both institutions have had their term of office ended prematurely, however politic the language. Expect more tarring and feathering of anyone who dares speak up for the EU or warns of troubles ahead. And although Leave talks the language of embracing the globe, in reality it is about closing and controlling borders with all that betokens in terms of distrust of the foreign other. Every form of bigotry – from near racism to misogyny – has a new license to speak the so-called unspeakable. This is not the backdrop for a major mobilization and programme of enlightened reform. It is the backdrop for retreat, closure and stagnation

So what to do? The first thing is to get passionate about what is happening. What was striking about the leavers was and is their passion and commitment. Remainers need to fight fire with fire. The Remain campaign had countless faults, but its most abiding problem was that it was a passion free zone. My own abiding memory is Jeremy Corbyn alighting from the campaign bus listlessly reading out from a crib sheet that the EU meant worker rights and social gains. Couldn't he remember that and speak from the heart? But in any case the EU is about so much more.

To challenge and roll-back this rotten culture and to give a reforming government the financial headroom and political bandwidth to do what it must do, Britain must not leave the EU. It is not just that leaving is an act of willful self-harm, getting in the way of what needs to be done – it is also leaving our continent’s most important and noble project of the twenty first century.

This is where we must start to get passionate, notwithstanding the charge we are challenging the democratic will of the people. If the facts change, as Keynes once famously said, I change my mind – what do you do? As the facts about the consequences of Brexit become clear, so majority opinion will change as it has every right. Democracy is about constant argument and deliberation, not deifying one vote at one moment in time. The change of heart can be reinforced by making a passionate case for the EU, and then give it the opportunity for electoral expression.

28 European countries coming together to make common cause around common values – and not fall into 21st century forms of conflict like trade wars or cyber spying – is inspiring. The 4 freedoms are inspiring. So are 28 countries coming together to shape a system of governance and adjudication of disputes. It is great that Europe comes together to fight terrorism, contest climate change, conserve fish stocks, create common standards for mobile phone charges, put pressure on Putin and all the rest. It is easy to decry what is not done – on refugees or too much austerity – but the enormous cost of leaving the EU shows the glass is half full rather than half empty. The Single Market is an amazing achievement that has driven an extraordinary economic coming together. Let’s say so. We need to make the case; and to press for a second referendum on proper terms.

Critically openness to Europe – a market for some half our exports – is important culturally as well as economically. Openness is the key to 21st century success. We are living through an era – rather like the late nineteenth and early twentieth century – of science lead transformations, so-called General Purpose Technologies(GPTs).

They are the transformative technologies like the railway or the computer that both have applications well beyond say transport or computing – and the capacity to revolutionise themselves. Their spillovers into general widespread purposes change the world. In our times digitisation is such a GPT. More GPTs are expected in the next century than in the last five combined.

GPTs don't drop out of inventors’ heads and then get driven along by entrepreneurs and private business. Certainly that is part of the story. Rather they are the products of an entire society and its scientific culture, commitment to science and joy in experimentation. There is an openness to ideas that connect to create something that there was not there before. And because the risk of introducing a GPT is huge, it cannot be born by one company or economic actor. The risk has to be socialized in some way by government or a public agency. In the middle ages it was monarchs and princes; today it might be public procurement or government funded science. But at all times and in all places great innovation has three abiding characteristics; it is driven by visionaries, the risk is socialised and the interchange of ideas is open.

This is even more true in the 21st century – whether AI, Internet of things, the marshalling of data – because there are so many ways to make errors: all need openness just to avoid mistakes. All need continental markets in which the small companies can scale up to become great companies

This is the starting point for visioning a different kind of Britain – not closed, not backward looking, not regressive, not repressive. But open – and with the opportunity for companies to grow to continental scale. To be in the EU is to be part of the future.

To put the leavers on the defensive, this argument has to be coupled with a political challenge. It must be made by a political party that is serious about winning political power, threatening to do so because it is willing to build the necessary coalitions. Nor will arguing for staying in the EU win it power alone – that will be toxic, challenged always as overturning the once expressed will of the people. The real argument is about convincing the electorate that their circumstances can be changed – that the Labour party, the party after all of Labour, has a feasible, credible programme that will change the majority of lives for the better. This is what voters will vote for – a second referendum in this context is an enabling element in a larger programme of improvement. Yes, you left behind Leavers. You have been heard.

The objective of a programme of economic and social reform is to organise a mass flourishing. More than 25 million British citizens work in the private sector. So the jumping off point must be the re-purposing of the capitalist firm where most people will spend the lion’s share of their time – fundamental to their incomes, their sense of themselves and the lives they lead. It’s what Labour’s forefathers thought and they were right.

 People want to work for – and society wants to boast – great companies. A great company is aiming through its goods and services to better the human condition from which it sets out to make profits. Purpose drives profit. Britain has far too few of such companies. The entire financial, innovation and ownership ecosystem in which companies are housed has to be reformed so that companies can commit to a purpose and pursue an animating vision. This was always important – but it is more important than ever now as GPT after GPT breaks over us. We need business vitality more than ever – and vitality comes from purpose.

No one move will shift the dial. There need to be company law changes so that companies must take heed of their wider responsibilities to employees, customers and society – a subtle change but which will re-calibrate directors’ fiduciary obligations. Companies should declare their purpose and be held to account for its delivery by independent directors and agencies. Executive pay should be linked to the achievement of performance in achieving purpose rather than the share price. Britain has the most fragmented system of shareholding in the world: we need more concentrated block holder shareholders with whom company boards and employees alike can build long term, supportive relationships. Companies should report systematically and extensively on their Intangible assets – their intellectual capital – copyrights and unique computer algorithms - now twice as important as tangible assets. Investors should spend resources on assessing whether companies are purposed, if necessary contributing via a levy to an independently managed service that will do it for them if they will not or cannot themselves. Companies should be free to deploy the entire array of devices that allow investors to express their commitment – from constraining takeovers to tighter regulation on the lending of shares, so-called stock lending. The UK should establish an independently managed investment fund to become block holder investors.

All this will lower the cost of capital and lengthen time horizons – and give companies the financial space and incentive to express purpose better. And of course it will apply to banks, who need to redefine their purpose perhaps more than most – as servers of their customers and creditors to the enterprising. Nor can they, any more than companies in the round, assume all this risk themselves. The British Business Bank and Bank of England, supported by the government, need to develop financial instruments and guarantees - especially to the holders of intellectual property – that allows credit to flow more easily in every part of the country. Decision-making should be regionalized and closer to the ground – aided by a network of regional public lending agencies working with banks.

Repurposed enterprise will also be better trusted partners as Open Innovators, and better able to handle risk. This is fundamental. We live in ultra-risky times – whether technology or Brexit. Companies can best handle risk by socialising it. Being as open as possible to others. And to create partnerships with public agencies and government to achieve the ambitious but risky goals we must establish if we are to create wealth at the technological frontier – in Nano technologies, in materials, in artificial intelligence, in machine learning, in the internet of things, in bio-sciences. Yes the government has to give a lead and find billions of pounds to support research in these areas: but it needs purpose driven company interlocutors to run with the ball. Tim Berners Lee and Mutafa Suleyman – founder of the worldwide web and the world’s biggest AI company alike – both tell me that the trust that comes from being purposed is the fundamental precondition for success.

But companies are populated and staffed by human beings. You can’t build great companies by treating people as notations of cost in a spread sheet, disposable at will in our new gig economy – the world of treating workers as no more than contractors rather than committed members of the enterprise. We need workers as members and even owners with a stake in the enterprise. We need countervailing power in the Labour market – and that means re-imagined and reinvigorated trade unions, who position themselves as partners of purposed companies – and maybe operate as enlightened staffing agencies in their own right. The law needs to be friendlier to collective bargaining, which itself needs to be re-imagined as a bargain with obligations on both sides. People want careers, to see prospects and to exercise their craft – and of course earn a good living. It’s time the Labour party and trade unions spoke with one voice to what most people want.

We need a revolution in our attitude towards developing and acquiring skills – a commitment to lifelong learning with apprenticeship possible throughout one’s life. But not only is working life beset with risks – so is life itself. I propose a new-look welfare system – flexicurity – that should cornerstone a system of security that looks after every citizen in Britain from cradle to grave. Flexicurity is a 21st century version of the Beveridge contribution – benefits related to contributions, but in a different context.

Yes, even purposed companies need to lose people sometimes when trading goes wrong, and Britain’s flexible labour market is in this respect vital, quickly to allow companies to downsize when they need. But that should not be the only story. People should not be devastated by loss of income when they lose work, or humiliated when they look for their incomes to be supported as they transition from one job to another. We need a radical upgrade in unemployment pay along with the radical transformation of our approach to skills – the second and third prongs of a flexicurity system.

This needs to nation-wide: we need to spread employment and opportunity across the country – there can’t be left behind communities. There needs to be a re-imagining of our towns and cities – smart cities with 21st architecture that are a pleasure in which to live and work. It shouldn't just be the wealthier exclusive parts of town that please the eye and impart well-being: it should be universal - everywhere.

This requires a live and revitalised public realm with the democratic legitimacy to act, the resource base to finance its reasonable public ambitions and fit-for-purpose institutions – including a media – which allow debate and argument on level, evidence based terms. A constitutional convention should hammer out the terms of a federal Britain with two elected chambers, constitutionally entrenched power for local government and rules and protocols for the holding of referenda. Our tax system must be reimagined – on property( values need to be updated from 1991), on inheritance (not a death tax but a we share in your good luck tax) on environmental bads, on companies and on those with high incomes. Everyone is a member of society: and everyone should contribute to the whole.

None of this was ever prohibited by the EU. Rather the EU was the bridge to international openness and thus the globe. The values that underpin this reform programme – fairness, commitment to opportunity, facing risk collectively, living lives well – are core European values. EU states are our cultural friends: they think just like us.

These are the five elements - a purposeful capitalism rehoused in a reimagined ownership, financial and innovation system that can seize the fantastic opportunities opened up by new technologies, a recast labour market with revisioned trades unions that enfranchises ordinary people in every part of the country, a cradle to grave system that takes risk out of ordinary people’s lives with flexi-security as its cornerstone, a reimagined and reshaped public realm with the broad tax base to  foster public initiative and public enterprise, and full membership of a recast EU which is the bridge to international openness and fundament of our prosperity. These are the five propositions around which the centre and left – and the best of the conservative tradition – can unite. They are what the overwhelming majority of British want, if only there were a party capable of making the arguments and putting together the coalition of interests to propel it to power to implement them.

These are views I hold passionately – and I thank the newly created Tribune group of MPs for giving me the platform to say so publicly at their launch. I hope the group will become the focus for political energy from across the country. There are people with integrity in business, in the third sector, in local government, in trade unions, finance, the professions along with working class men and women in their millions who are aching for battle to be joined, who will campaign for a better country. There are brilliant centres of research at all our great universities whose thinking needs to be harnessed to the cause. We need a transformative public conversation – and a willingness to argue our heads off for tolerance, for fairness, for openness, for knowledge and for membership of the pan European institutions and markets developed on our continent.

This is above all a political project which while encompassing great social movements cannot be delivered by a social movement. We stand on the verge of a Great Unravelling with untold consequences for our economy, our society, our place in the world and our souls. It is time to raise the standard and return fire. We make the case for a reimagined Britain and its membership of the EU. We say not what we are against but what we stand for. As events unfold it is a political opportunity that must be seized – the chance to remake a party and a country. We want our country back. We have to start working for it now.